Hospital district files bankruptcy

It quickly became standing room only at the Mendocino Coast Health Care District board meeting last Thursday, as concerned staff and citizens filled each seat; the crowd was present to hear the board's decision on whether to file for bankruptcy.

With the downturn in financial performance and attempts to renegotiate with some creditors stalemated, the board voted to declare Chapter 9 Bankruptcy, 3-2. Board members Dr. Buz Graham and Dr. John Kermen abstained since they both contract with the hospital.

CEO Raymond Hino explained that Chapter 9 bankruptcy is reserved for municipalities and filing for Chapter 9 will allow the district to restructure its debt.

"The hospital will have the ability to cancel contracts and negotiate new payment terms," he said.

Hino assured the public the hospital will not go out of business, or be put up for sale. He is hopeful the process will last five to six months while they work with creditors to find a solution.

The financial restructure plan is currently not being revealed and is protected under attorney-client privilege. The board plans to file on Nov. 15.

Financial status

CFO Wayne Allen informed the board that the days cash-on hand has dropped to 2.3 days, which means if the hospital suddenly stopped bringing in revenue, it would have enough cash on hand to pay its expenses for 2.3 days; roughly $270,000.

Allen mentioned the district borrowed $1 million on its line of credit in June, and without it, the district is in the red and has been for the past 95 days.

The net loss from operations in August was approximately $170,00, combined with the $250,000 net loss from July. If the hospital continues that trend, estimates project the district could lose $2.5 million this fiscal year.

Allen also reported that the debt service ratio is up to 1.36. The required limit by the hospital's bond insurer is 1.25 or higher.

Last year, the debt service ratio number was discovered to be dramatically below the required 1.25 limit, and by June the number had returned to an acceptable range.

When asked in a phone conversation how the debt service ratio can be up and the financial situation be down, Allen responded that the debt service ratio tracks how profitable the hospital has been in the past 12 months. The financial hardship the hospital is facing now is projecting where the hospital will be in the future 12 months.

Allen said that by looking at the trends he sees revenue going down and costs going up.

"I can't allow a situation to develop where everyone wakes up and says, "How did this happen?'" said Allen. "There is enough data collected in the last two to three months to allow us to forecast a problem to the magnitude we are talking about."

He explained some of the reasons of this downward trend are expenses.

"We have tried to corral and stabilize, but we can't do it on day-to-day operations [alone]," Allen added. "If Ray [Hino] and I could do it all by ourselves, we would."

When asked if he thinks the creditors are willing to work with the district, Allen responded that he feels very optimistic.

"This hospital is a valuable resource to the community; it's got to be worked out and will be worked out," he said.

Electronic Medical Records

Jeff Edwards announced that Stage 1 of the Meaningful Use federal requirements for reimbursement of the installation of the Electronic Medical Records system is done and the district met all the measures.

Stage 2, the implementation stage, which will take a year.

Board Chair Sean Hogan mentioned that Stage 1 was completed $500,000 under budget. The board meeting concluded with the next one scheduled for Thursday, Oct. 25, at 6 p.m.